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Private Equity Predators Circle Great Wolf in Bidding War

NEW YORK ( TheStreet) - KSL Capital Partners has topped a March bid by private equity giant Apollo Management (APO) for struggling water park and hotels chain Great Wolf Resorts (WOLF) .

Great Wolf Resorts is now set to face a private equity bidding war as the buyout funds circle the company's water park resorts as an investment, driving its share higher.

On Thursday, KSL bid $6.25 a share, or $879 million for Great Wolf Resorts when counting the company's debt, upping by 25% a previous $5 a share offer from Apollo that had been approved by Great Wolf Resorts's board. However, that price and the company's use of a "poison pill" to thwart a hostile takeover attempt prompted a flurry of shareholder lawsuits.

KSL's $6.25 a share bid throws another wrench in that sale process, as some investors expected. Since the March 13 offer was first announced, Great Wolf shares have traded over 10% above the $5 offer price. In Thursday morning trading, Great Wolf shares rose over 12% to $6.42, topping KSL's unsolicited bid.

After Great Wolf Resorts board unanimously agreed to Apollo's $5 a share bid, the Madison, WI-based operator of 11 water-park themed resorts faced pressure by shareholders to conduct a more full sale process to draw a higher-priced bid. In accepting Apollo's offer, Great Wolf Reports agreed to a "no-solicitation" provision that would prevent the company from shopping for a higher priced takeover. Meanwhile, it also enacted a "poison pill" to prevent an investor from snatching more than 12.5% of the company's shares.

Still, Great Wolf's sale process allowed for new parties to make higher unsolicited offers, such as KSL's $6.25 a share Thursday bid.

KSL, a resorts-focused private equity fund with investments in Squaw Valley and San Diego's La Costa Resort and Spa, appears to be joining the Great Wolf sweepstakes after what Great Wolf claims was an extensive sale process that took the better part of a year, but culminated with bids of just $5.

With Deutsche Bank (DB) as a financial adviser, Great Wolf Resorts Chief Executive Kimberly Schaefer told Bloomberg News that the company reached out to 38 prospective bidders and 11 entered confidentiality agreements to review the company's finances. Deutsche Bank's analysis of Great Wolf Resorts noted that the company could be worth between $3.74 and $7.98 a share, according to a shareholder lawsuit. Nevertheless, in the nine-month sale process, only three bids emerged at a value of roughly $5, according to Bloomberg, paving the way for the board's approval of Apollo's offer.

"After a thorough assessment, we concluded that the proposal put forth by Apollo is the best way to maximize value for shareholders, who will receive a substantial and immediate cash premium for their shares," said Schaefer when recommending Apollo's offer to shareholders.